China to Invest $40 Billion by 2015 for Solar Development

China to Invest $40 Billion
by 2015 for Solar Development

On
September 12, 2012, China’s National Energy Administration (NEA) announced the
finalized 12th Five-Year Plan for solar development. The plan sets a
target of 21GW installed solar capacity by 2015, which includes 20GW PV
installations and 1GW CSP installations. The plan also sets a total budget of
250 billion yuan, or about $40 billion, and expects half million people
employed in the solar industry by 2015. Additionally, the plan sets a target of
50GW installed capacity by 2020.

Figure 1 – China’s Solar InstallationsHistorical and Official Targets

Source: SEMI and China
NDRC

The new
target marks the third increase of the national 12th Five-Year Plan for
solar development. The initial target was only 5GW set in 2011, then was raised
to 10GW in early 2012, and was raised again to 15GW in May 2012. The finalized
target of 21GW solar installations by 2015 is the same as the preliminary
announcement made in July.

At the end
of 2011, China had about 3.5GW installed PV capacity, and about 5-6GW new
installations are expected for 2012. This leaves approximately 4GW of new
installations required per year from 2013-2015 to meet the target. Although the
market size of 20GW is quite significant, it is much smaller than 40GW widely speculated
in China’s PV industry and Chinese media in recent weeks.

According
to the plan, by 2015 China will have 10GW installed capacity of large-scale PV
power plants and 10GW installed distributed PV generations. Up to now, China’s
PV market has been dominated by large-scale ground-mounted installations. The
new plan clearly demonstrates China’s shift of focus to commercial rooftops and
self-consumption, as grid integration of large-scale systems have become
difficult in many places. The plan also calls for the development of
micro-grid, smart grid, and 100 demonstration cities.

However,
many in the Chinese PV industry are concerned that the target is not enough to
help the struggling domestic manufacturing, and many believe the actual
installations will exceed the official target. It was reported one day after
the government release of the plan, Gao Jifan, CEO and chairman of Trina Solar,
commented that he expected 10GW new installations in China in 2013.

The plan
also recognizes the challenges facing China’s PV manufacturers, and emphasizes the
need for additional industry consolidation and a healthy industry environment.
China now hosts at least 50 percent of the global PV manufacturing capacity as
a result of massive investment in this sector in 2010 and 2011 (Figure 2).

Even
though the Chinese government has long recognized the danger of unsustainable
investment in this sector, it appears that socioeconomic concerns, such as
regional economic development, employment, social stability, have outweighed
those concerns. As a result, capacity rationalization process in China has been
painfully slow. To achieve a global supply/demand balance, the capacity
rationalization process needs to take place in China, even permeate to the
level of Chinese Tier 1 companies. There are signs that this process may be picking
up. Recently, LDK, Trina, and Suntech, for example, have all gone through or
have announced production cutbacks and workforce reduction. With a severe global
overcapacity and declining prices, coupled with trade tariffs imposed by U.S.
and the anti-dumping investigations by European Commission, things are likely
to get worse before getting better.